Empirical Economics

, Volume 27, Issue 1, pp 131–148

Nonlinearity in dynamic adjustment: Semiparametric estimation of panel labor supply

  • Thomas J. Kniesner
  • Qi Li
  • 94 Downloads

Abstract.

We estimate a semiparametric dynamic panel data model by the local linear kernel method and we interpret the slope of the nonparametric component function as a varying slope coefficient. Thus, the slope coefficient is a smooth, but otherwise unknown, function of some of the regressors. A Monte Carlo experiment is reported to examine the finite sample performance of the local linear estimator. We apply the estimation method to a labor supply equation for men from the triannual Survey of Income and Program Participation (SIPP). Specification tests based on the estimated labor supply elasticities, partial adjustment coefficients, and residuals demonstrate the improvements from a semiparametric partially linear model. Our empirical results point to a need by economists to revisit the issue of the speed of labor market adjustment to policy induced shifts in labor demand and to take more formal econometric account of heterogeneity in wage effects when studying the distributional consequences of tax reforms for labor supply earnings.

Key words: Nonlinearity semiparametric estimation labor supply panel data SIPP 
JEL classification number: C14 C23 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Thomas J. Kniesner
    • 1
  • Qi Li
    • 2
  1. 1.Center for Policy Research, 426 Eggers Hall, Syracuse University, Syracuse, NY 13244-1020, U.S.A.US
  2. 2.Department of Economics, Texas A&M University, College Station, TX 77843, U.S.A.US

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